Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Monday, April 20, 2015

THAT WAS THE TAX SEASON THAT WAS 2015

Before it began the 2015 tax filing
season, for filing 2014 tax returns (my 44th season as a paid tax
preparer), was expected to be the worst tax season ever, at least by IRS
leadership.

“The
filing season is going to be the worst filing season since I’ve been the National
Taxpayer Advocate,” said Nina Olsen.

And IRS Commissioner John Koskinen predicted
that the 2015 tax filing season “will be
one of the most complicated filing seasons we’ve ever had.”

Why?To begin with the idiots in Congress once again waited until literally
the last minute to extend the perennial “tax extenders” for tax year 2014,
which would, despite IRS assurances to the contrary, almost assuredly cause
processing delays.The IRS budget was
cut - also attributable to the idiots in Congress - and, of course, taxpayer
service took the hardest hit. And the
cuts came just as the IRS began its new added responsibility of administering
the Affordable Care Act, aka “Obamacare”.

As a result of Obamacare taxpayers
had to indicate on their 2014 Form 1040 (or 1040A) whether or not they had
“adequate” health insurance coverage, and could be subject to a penalty if they
did not.It was suggested that tax
preparers would need to spend excessive time on “due diligence” to verify that
their clients did indeed have adequate coverage.

Taxpayers who acquired insurance
through the Obamacare Marketplace and received an “advance premium credit” to
help pay for their insurance during 2014 had to calculate the correct amount of
the credit to which they were entitled as part of the filing of their tax
return and reconcile the actual credit to the advance credit.

As it turned out, at least for me,
the tax filing season was no worse, or better, than any other.

To begin with, for the past 40+
years the tax filing season has always started for me on February 1st.And this season was no different.

For the most part I was able to tell
whether or not my clients had health insurance coverage without even asking the
question.I could tell from the DD entry
in Box 12 of Form W-2, or a reference to Section 125 pre-tax health insurance
coverage in Box 14.Or the deduction for
Medicare Part B premiums identified on Form SSA-1099.Or the amount of the “above-the-line”
self-employed health insurance deduction listed on the worksheet of a Schedule
C filer.

For the very few clients where the
above did not apply all I had to do was ask.I had no legal or ethical responsibility to personally verify a client’s
coverage.A simple yes or no answer was
enough.

I only had a handful of clients who
did not have the required coverage, and most were able to avoid the penalty via
the “unaffordable” exemption.Only two
clients had to actually pay a penalty.And only three clients had received an advance premium credit (one a
GDE).

The two that I did during the season
initially received erroneous 1095-As.One client received a corrected form – after holding up the preparation
of the return for at least a month – and one has not yet received a correction.I prepared the second return with the
incorrect information so as not to hold up the client’s refund, and will amend
for an additional refund when the corrected 1095-A finally arrives.

Other than the two Obamacare items
there was really nothing new for 2014 returns.

The new reporting requirements for Form
1099-B have been around for 4 years now, so more transactions were considered
to be “covered” this year.And overall 1099-B
reporting by brokerage houses continued to be more consistent and easy to
follow.

I was happy to take advantage, where
possible, of Lines 1a and 8a on Schedule d, which allowed me to enter totals
for covered transactions without adjustments and avoid listing each sale
individually on Form 8949 or supplemental statements thereto.However, I do wish that the IRS would allow
these lines to be used if the only adjustments to be reported are category “W” (for
wash sale) - as a $1.00 wash sale adjustment on one transaction currently forces
me to cut and paste dozens of pages of sales on supplements to Form 8949.

And I continue to believe that brokerage
houses should be allowed the option of reporting the cost basis of
“non-covered” sales to the IRS on Form 1099B if the investment was purchased by
the same firm that is reporting the sale, expanding the use of Lines 1a and 8a.

It seemed that the initial
Consolidated 1099 Tax Reporting Statements from brokerage houses were mailed
out later than usual this year – with some houses totally ignoring the February
17th deadline – and the sometimes multiple corrected 1099s also
arrived later.I was notified by a
client’s broker of corrected 1099 statements for two accounts on March 24th,
literally the day after I had hand-delivered the finished 1040 to the client,
with news of another corrected form for the same account a week later.One of the corrected statements contained
absolutely no changes, but the others did.I chose not to revise the finished return, but instead will file an
amended 1040 after I am done with the GDEs.

The extended deadline for issuing
the initial 1099, and the apparent need for multiple corrections, started with
the introduction of the “qualified dividend” back in 2003.The financial industry has had more than a
decade to create software that would properly identify qualified dividends on a
more timely basis.I see no reason why
we should still have to wait until mid-February for certain 1099 statements,
and then wait until mid-March or later for corrected statements.

The stock market apparently did
great in 2014.Dividends and capital
gain distributions, and gains on investment sales, were substantially higher
for many clients – resulting in some hefty balances due to Sam and Chris.Most of this increased income arrived in late
December, so there was no “warning” during the year.One client received over $25,000 in dividends
and capital gain distributions from a single mutual fund in late December.

When breaking the bad news to these
clients I reminded them of what my mentor, Jim Gill, always used to say – “If
you owe taxes you must have made money somewhere.”

The increased investment income also
raised an issue for clients who make estimated tax payments.Do we schedule higher 2015 estimated payments
using the “safe harbor” method, or base the payments on more “normal” returns?In a couple cases the increased investment
income kicked AGI over the $150,000 mark, which makes the 2015 “safe harbor”
110% of 2014’s total liability.

While NJ state tax law did not
change, I now had to attach a signed NJ-1040-O “opt-out” form to all manually
prepared NJ-1040s, as well as keep signed copies on file.I do not use flawed and expensive tax preparation
software, and never will, so I cannot submit all NJ returns electronically. Whenever possible, and unless the client
specifically opts out, I use the NJWebFile system, which allows me to submit
NJ-1040s directly to the Division of Taxation online, but this system has many
limitations, and I am often forced to submit manual returns.I was pleased to learn that the ability to
claim excess Family Leave Insurance contributions was finally added to the
NJWebFile system, allowing me to use it for more returns this season.

Beginning with the 2014 NJ-1040 the
Division of Taxation allowed taxpayers to submit filled-in NJ-1040s
online.This initially appeared to be an
excellent alternative option for me.But
I discovered that a separate username and password/pin was required for each
individual submission.I used this new
option for three returns early in the season and then stopped.I had no intention of having to create and
keep track of dozens of separate and distinct usernames and passwords.Hopefully the Division of Taxation will change
this policy in the future and permit multiple submissions from a single
username and password.

This new requirement added more
time, and paper, to the process of completing many NJ-1040s.

Of course the NJ Division of
Taxation could always follow New York State’s lead and exempt tax preparers who
do not use software from the electronic filing mandate.I won’t hold my breath.

Also new for the 2014 NJ-1040 -
homeowners were required to enter on their return the Block and Lot numbers of
the residence for which they were claiming a property tax deduction or
credit.NJ has not asked for this
information since the early 2000s, when the Homestead Rebate application was
part of the NJ-1040 filing.In many
cases the client included the postcard from the city, borough, or township that
indicated the property tax assessment, and the block and lot numbers, with
their “stuff”.For others I had to dig
through past years’ return copies in my files to search for the numbers.This, too, added more time to the NJ return
completion process.

Thankfully there were no “technical
difficulties” involving my computer or printer, my car, or the weather to
contend with this tax season.

As usual I ended the season with too
many GDEs (the “E” is for extension – and the GD is for exactly what you think
it is for).Though less were due to workload.I was again “more better” at self-enforcing
FIFO – first-in, first-out.

More than 2/3 of the GDEs I mailed
out on April 14th were submitted because the client’s package was
received after my new earlier deadline (my January client letter instructed “If you want me to complete your tax returns
in time for the April 15th deadlineyour
stuff must be in my hands - not postmarked - by end of business on March 21st”),
or because there was missing, or no, information.It is my hope to finish all the GDEs for
which I have all the necessaryinformation by April 30th.

I do need to thin the herd going
forward to cut down on GDEs, and in preparation for my eventual retirement
after completing 50 tax seasons.Sadly
the herd was thinned a bit this year by the passing of several long-time
clients, originally of JP Gill.

As usual
the tax season ended for me not on April 15th but on April 14th.For those of you who do not know why, fellow
tax-blogger Peter J Reilly from Forbes.com explains here.And on April 16th I headed to the
Jersey shore to recover.

So there
it is.That was the tax season that
was.It certainly wasn’t the worst, or
the best, in my 44 years.Any questions?

1 comment:

Jordan Saletko, RTRP
said...

I disagree with Mr. Flach. In my 50 years of doing returns this is absolutely the worst. You didn't mention the Obama Care forms and the poor clients has either had no insurance, had it for part of the year or got it from the marketplace. In each case I had additional forms to do and sometimes had to wait for corrected forms from the 3rd party running the marketplace. They just didn't give a damn and left clients hanging on forever. Clients waited until the end because they didn't know if Obama Care was going to affect them. Some had to repay credits with sums close over $1500. We've had nothing like this, ever, and it won't get better for the next tax season.

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VERY IMPORTANT -

(1) Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.

(2) I am winding down my tax practice, and I will not, under any circumstances, accept any new clients. Period. I am actually trying to "thin the herd".